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© 2008 Lenovo
Lenovo Group Limited
2008/09 Q1 Results
August 7, 2008
© 2008 Lenovo
Wong Wai Ming
Senior Vice President & Chief Financial Officer
Page 3 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
0
1,000
2,000
3,000
4,000
5,000
FY08 Q1 FY08 Q2 FY08 Q3 FY08 Q4 FY09 Q10.0
0.5
1.0
1.5
2.0
FY08 Q1 FY08 Q2 FY08 Q3 FY08 Q4 FY09 Q1
Sales (US$mn) # Basic EPS (US cents)
* Industry estimates # Continuing operations for previous quarters figures
Lenovo Q1 FY08/09 Results Highlights
• PC unit shipment up 14.6%, with WW market share flat at 7.9%*
• Sales US$ 4,213 million, up 10.5%
• Gross margin at 14.1%, down 0.7 pts
• E/R reduced to 11.1%, improved by 0.3 pts
• Net profit US$110 million, up 65%
• Basic EPS 1.25 US cents, up 60%
Page 4 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Financial Summary
* Excludes restructuring costs
US$ Million Q1 FY2008/09 Q1 FY2007/08 Y/Y Q/Q Continuing Operations Sales 4,213 3,813 + 10.5% + 12.8%
Gross Profit 595 565 + 5.2% + 6.3% Operating Expenses (469) (433) + 8.1% - 0.6% Other Income, net 1 2
Operating Profit before Restructuring Cost 127 134 - 5.1% + 35.0% Other Non-Operating Income / (Expenses) 10 (2) Pre-tax Income before Restructuring Cost 137 132 + 3.7% + 33.2% Restructuring Cost 0 (45)
Pre-tax Income 137 87 + 57.1% + 32.5% Taxation (27) (15) Profit from Continuing Operations 110 72 + 54.4% + 5.3% Loss from Discontinued Operations - (5) Profit attributable to Shareholders 110 67 + 65.3% - 21.3%
Q1 2008/09 Q1 2007/08 Q4 2007/08Gross margin 14.1% 14.8% 15.0%Expense-to-revenue ratio* 11.1% 11.4% 12.6%Operating margin* 3.0% 3.5% 2.5%PTI margin* 3.2% 3.5% 2.8%Net profit margin 2.6% 1.8% 3.8%
Page 5 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
0
1,000
2,000
3,000
4,000
5,000
1Q 2007/08 1Q 2008/09
Developed marketsEmerging markets
0
1,000
2,000
3,000
4,000
5,000
Q1 2007/08 Q1 2008/09
OthersNotebookDesktop
0
1,000
2,000
3,000
4,000
5,000
Q1 2007/08 Q1 2008/09
EMEAAmericasAP (ex GC)Greater China
2%
57%
41%
1%
55%
44%
20%30%13%37%
21%26%12%
41%
57%
43%
54%
46%
Balanced geographic mix
Increasing emerging markets presence Higher notebook mix
4,213 mn
4,213 mn4,213 mn
3,813 mn
3,813 mn 3,813 mn
US$mn
US$mn US$mn
Sales Breakdown*
* Continuing operations
Page 6 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Geography Performance*
• All geographies (except Americas) posted YTY sales growth• Positive segment operating profit for all geographies
* Continuing operations and excludes last year and last quarter restructuring costs for comparisons
Q1 09 Y/Y Q/Q Q1 09 Q1 08 Q4 08 Q1 09 Q1 08 Q4 08
Greater China 1,719 21.6% 33.5% 117 103 99 6.8% 7.3% 7.7%
Americas 1,093 -4.8% 6.6% 4 39 16 0.3% 3.4% 1.5%
EMEA 904 19.8% 2.8% 20 14 18 2.2% 1.8% 2.0%
AP (ex GC) 497 0.1% -8.5% 7 0.3 6 1.5% 0.1% 1.2%
SalesUS$mn
Segment Operating ProfitUS$mn
Segment OperatingProfit Margin
Page 7 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Condensed Balance Sheet
US$ Million As at As at Jun 30, 2008 Mar 31, 2008
Non-current assets 2,522 2,494 Property, plant and equipment 355 365 Intangible assets 1,839 1,838 Others 328 291
Current assets 5,167 4,705 Bank deposits and cash 2,298 2,191 Account receivables 2,235 1,999 Inventories 584 472 Others 50 43
Current liabilities 4,869 4,488 Short-term bank loans 13 61 Account payables 4,728 4,273 Current portion of non-current liabilities 51 49 Others 77 105
Net current assets 298 217
Non-current liabilities 1,116 1,098
Total equity 1,704 1,613
Page 8 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Cash and Working Capital
US$ Million Q1 2008/09 Q1 2007/08 Q4 2007/08
Bank deposits and cash 2,298 1,507 2,191Total bank borrowings 513 193 561Net cash reserves 1,785 1,314 1,630
Days inventory 13 11 13
Days receivable 28 23 28
Days payable 64 60 70
Cash conversion cycle -23 days -26 days -29 days
Page 9 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Share Repurchase Update
• Total no. of shares repurchased since March is approx. 148 million, at an aggregate consideration of US$96 million.
Share Repurchase (Apr 1 - Jun 30, 2008)
Total no. of shares repurchased 74.63MWeighted average repurchase price HK$5.40Highest price HK$5.99Lowest price HK$5.03Aggregate consideration paid US$51.9M
Page 10 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Outlook
• PC market expected to grow despite global economic slow-down
• Balanced approach to investment and to profitability
• Growth driver in consumer business and emerging markets
• Pursue operational excellence
• Improve scaling of expenses
© 2008 Lenovo
William Amelio
President & Chief Executive Officer
Page 12 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Grow faster and more profitably than the industryby delivering the most innovative PCs and an unequaled ownership experience.
Strategic Focus
Accelerate trust-based & performance-driven cultureAccelerate trust-based & performance-driven culture
1Pursue
Operational Excellence
2Embrace Customer Intimacy
3Win in Priority
Businesses
4GainScale
Profitably
5BuildOur
Brand
Page 13 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Pursue Operational Excellence
• Global Supply Chain Significant competitive advantage
• Overall cost and efficiency improvements– Worldwide serviceability +9% YOY
– 13% YOY cost-per-box savings
• Key focus on Lean Six Sigma
• Awarded U.S. C-TPAT Tier III validation
Page 14 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Embrace Customer Intimacy
• Recognition for excellence in customer satisfaction– #1 in notebook customer satisfaction in 1Q08 (TBR)– Moved to #2 (1Q08) from #4 (1Q06) in desktop (TBR)– Independent “Customer Delight” surveys at all time highs
• Lenovo Services– Contract signings up 47% YOY
• Lenovo Software & Peripherals– Sales up 16% YOY; strong growth in China, AP & EMEA– Agreement with McAfee to be security software partner
Page 15 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Win in Priority Businesses
• Emerging Markets– China growth ahead of market for 12th consecutive quarter– Gained share in targets: Mexico, Russia, Turkey & UAE/Saudi Arabia– Improved business processes & strengthened leadership for India
• Workstations & Servers– Workstation sales & profitability solid; strong pipeline– ThinkServer launch on track for next quarter
• Consumer– Sales & volume outpaced market in 1Q – Web consumer direct successfully launched in U.S.– Introduced IdeaPad ultra-portable “netbook”– Expansion of IdeaPad product line & consumer PC sales channels
Page 16 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Build Scale Profitably
• Transaction Business– Sales: 1Q08 +21%– Shipments: 1Q08 +20%– 9th consecutive quarter of profitable growth worldwide– Notebook volume 11 pts ahead of market
• Relationship Business– Sales: 1Q08 +2%– Shipments: 1Q08 +5%– All geographies profitable; 6th consecutive quarter
Page 17 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Build Our Brand
© 2008 Lenovo
Yang Yuanqing
Chairman of the Board
© 2008 Lenovo
Appendix
• Income Statement• Cash Flow Statement• Netbook’s Definition
Page 20 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Consolidated Income StatementUS$ Million Q1 2008/09 Q1 2007/08Continuing operations: Sales 4,213 3,813 Cost of sales (3,618) (3,248) Gross profit 595 565 Other income, net 1 2 Selling and distribution expenses (250) (254) Administrative expenses (174) (129) Research and development expenses (54) (49) Other operating income/(expenses) - net 9 (46) Operating profit 127 89 Finance income 20 6 Finance costs (9) (8) Share of losses of associated companies (1) (0) Profit before taxation 137 87 Taxation (27) (15) Profit from continuing operations 110 72Losses from discontinued operations - (5)Profit for the period 110 67Profit attributable to:Shareholders of the Company 110 67Earnings per share- Basic 1.25 US cents 0.78 US cents- Diluted 1.15 US cents 0.74 US cents
Page 21 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Condensed Consolidated Cash Flow Statement
2008/09 2007/08US$ Million Q1 Q1
Net cash generated from operating activities 182 402
Net cash used in investing activities (285) (56)
Net cash (used in)/generated from financing activities (107) 87
(Decrease)/increase in cash and cash equivalents (210) 433
Decrease in cash and cash equivalents from discontinued operations - (15)
Effect of foreign exchange rate changes 28 25
Cash and cash equivalents at the beginning of the period 1,651 1,064
Cash and cash equivalents at the end of the period 1,469 1,507
Page 22 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo
Netbook’s Definition
• The term was introduced by Intel in February 2008. It is a category of super-slim, super-small subnotebooks to complement a customer’s primary PC or as a first-time, introductory PC purchase. It is optimized for Internet access and core computing functions, such as Web browsing and multimedia content use.
Page 23 of 23Lenovo Group Limited FY2008/09 Q1 Results | © 2008 Lenovo